Free & Clear: December 2013

UNC system does more with lessBy John Hood

That the UNC system is getting more efficient is a promising development for students, taxpayers and employers, but it leaves at least one group in the state muttering in disgust. That would be fiscal liberals, the polar opposites of fiscal conservatives. When it comes to higher education, fiscal liberals believe that the state’s traditionally high level of subsidy was a good investment in economic development and that, even before the Great Recession, the UNC system didn’t get enough state money.

Fiscal conservatives believe that our long history of doing that has not paid sufficient economic dividends to justify the cost. They point out that North Carolina doesn’t have higher rates of college attainment than comparable states without generous subsidy and that the full cost of instruction at UNC schools — whether paid for by tuition, taxes or other revenue — was 20% higher than the national average as recently as 2010.

The debate between fiscal conservatives and liberals hasn’t been about whether the state should pay for higher education. The debate is about how, and how much. Many of our competitors have successful, highly regarded university systems that cost much less than UNC. (Again, I’m talking about full cost, not just the sticker price.) North Carolina’s high-subsidy policy is neither necessary nor sufficient for delivering excellent higher education. If you remove research, physical plant and ancillary enterprises such as teaching hospitals from university budgets to produce an apples-to-apples comparison, tuition covers about 50% of direct student expenses in the system. The national average is 91%. It’s hard to argue that reducing overall costs, and striking a better balance in sharing those costs among direct beneficiaries and taxpayers, would harm North Carolina when it clearly hasn’t hurt Virginia, Michigan, Ohio, Texas or Pennsylvania — all with highly ranked public universities and far lower levels of subsidy.

More to the point, there have been 25 peer-reviewed studies published in the past two decades examining the economic impact of state funding for universities. In two-thirds of them, higher university funding had either no statistically significant effect on state economic performance or a negative effect (that is, the costs of the necessary state taxes exceeded the measurable benefit).

While recessionary state budgets and the election of cost-conscious Republican politicians in 2010 and 2012 have elevated the issue of making the university system more efficient, some leaders have been working on it for many years. Until his untimely death in 1999, UNC Chapel Hill Chancellor Michael Hooker spoke frequently about the need to control costs and the unfairness of compelling taxpayers of average incomes to generously subsidize the education of Carolina students, who tend to come from higher-income households. And when former Clinton administration chief of staff Erskine Bowles became president of the UNC system in 2005, he began reassessing budgets and promoting innovative ways to deliver services. In 2008, the Chapel Hill campus recruited a donor to pay for an outside audit of its operations, which led to the creation of a project called Carolina Counts, which has been behind tens of millions of dollars of savings. Earlier this year, UNC Charlotte Chancellor Phil Dubois said his campus spends 8% less per degree than it did five years ago while producing 25% more of them. More generally, the UNC system’s total state funding reached its inflation-adjusted, per-student peak in 2008, at $23,623. By 2012, that figure had fallen 16%, to $19,856. On many campuses, administrative expenses dropped, faculty productivity rose, and new technologies and management practices began to reduce the cost of instructional and support services.

University leaders and state officials need to continue the effort even as the pressure from the state budget subsides. If campuses want to pursue initiatives, they need first to identify older or lower-priority programs that they can shrink or do without, just as other institutions and households routinely do. UNC schools also should avoid the temptation to overcharge for online courses as a means of cross-subsidizing other programs. In the long run, that will price them out of the emerging market for online learning.

In February, the system’s board of governors adopted a new strategic plan called the UNC Compact with North Carolina. While fiscal conservatives may disagree with elements of it, the plan does recognize that the system has entered new territory — not just because of political changes in Raleigh but also because of institutional, educational and economic changes underway elsewhere in America and around the world.

Fiscal liberals don’t like the UNC Compact very much. That’s a selling point for it.

John Hood is chairman and president of the John Locke Foundation. You can reach him at jhood@johnlocke.org.

John Hood is chairman and president of the John Locke Foundation. You can reach him at jhood@johnlocke.org.